The Sugar Daddy Game: How Wealthy Investors Change Competition in Professional Team Sports

Professional sports leagues have witnessed the appearance of sugar daddies - people who invest enormous amounts of money in clubs and become their owners. This paper presents a contest model of a professional sports league that incorporates this phenomenon. We analyze how the appearance of a sugar daddy alters competitive balance and social welfare with respect to a league with purely profit-maximizing club owners. We further show that the welfare effect of revenue sharing in a sugar daddy league is ambiguous and depends on the degree of redistribution and on whether the sugar daddy invests in a small or a large club.